Effect of Interest Rate Capping on Lending of Commercial Banks in Kenya

Abstract

The introduction of interest rate capping in Kenya triggered commercial bank lending. Change in lending amongst commercial banks has so often resulted to credit rationing. As a result of the evolving loaning, little credits are not promptly accessible, numerous shopper money organizations shut their activities, vault money lenders quit making little purchaser advances and unregulated advance suppliers like pawnbrokers rose. The examination analyzed the impact of topping of loan cost on the loaning of Kenyan business banks. The autonomous variable for the investigation was interest rates and control factors (bank size, money save proportion, credit chance, and volume of deposit). The examination utilized unmistakable research structure. The outcomes were dissected utilizing Stata Version 14.0. From the outcome of relationship investigation, there exists a positive and factually huge connection between's bank size and loaning by business banks. The results additionally found there is a negative yet unimportant relationship linking CRR and loaning by business banks. Credit risk revealed a negative and critical relationship with loaning of business. Volume of deposit revealed a strong positive and noteworthy relationship with loaning of business banks. Interest rate had a negative and noteworthy relationship with loaning of business banks. The model rundown uncovered that bank size, cash reserve ratio, credit risk, and volume of store and interest rate capping clarify 78.76% of the variety in loaning of commercial banks. Relapse results revealed that bank size is positively associated with loaning conduct of commercial banks. Board results likewise indicated that cash reserve ratio revealed a negative yet with irrelevant association with loaning conduct of commercial banks. Credit risk uncovered a negative and critical association with loaning of commercial banks. The discoveries of the examination additionally showed volume of deposits has a positive and critical association with loaning by commercial banks post introduction of rate caps. Interest rate capping has a negative and huge association with loaning of commercial banks. The investigation reasons that bank size, credit risk, volume of store and interest rate impacts loaning conduct of commercial banking. This examination suggests that commercial banks may need upgrade their ability in credit investigation and advance payments while the administrative entity should give more consideration to the banks' supervision concentrating on the consistence of applicable arrangements and orders towards the banking activities. Commercial banks ought to conform to banking rules and guidelines to stay away from the expanding occurrence of nonperforming advances and the administrative specialists ought to routinely get to the loaning conduct of the banking business. The credit strategies of the commercial banks ought to be integrated with the loaning rules among the commercial banks and effective credit procedures ought to be proposed. Credit risk was presented after the presentation interest rate capping. Commercial banks ought to have set up unmistakably characterized strategies on risk recognizable proof. Commercial banks may need to fortify and upgrade their credit risk examination practices to distinguish credit worth borrowers before giving out advances.